SBUX - Starbucks Corp

[rb]

I think sales will jump up close to where they were once people can get back to their routines. Folks are getting stir crazy and something like a Starbucks coffee before their work day or meeting a friend there will be the biggest treat for a while

 

Yup.. I would pay $1000 to go out to a decent restaurant and have a few drinks right now. Or go see a shitty movie. Or catch a hockey game.

No shit! Another thousand from me. A nice stake from Morton's! A gin martini, a nice bottle of red. Talking shit with an old friend - corona unrelated, checking out a waitress. Ahhh, the simple things.

[Spekulatius]

I bought some when it was near 50.

Should have bought more

 

I was hoping to see this dip back into the 40’s. DNKN also looks a bit interesting although their leverage and the whole “asset lite” thing always gives me pause. I never know how to views companies like them, MCD and other franchise chains because of that. So generally I just stay away.

 

The problem with being on top and asset lite is that you need to pay attention on how the grunts on the bottom are doing. If they fail , the franchisor will fail too even if it is financially healthy by itself. I am suspicious about the financial health of DNKN franchisees.

[DooDiligence]

Starbucks product placement in grocery stores is far superior to Dunkin's.

Not sure if it's execution by Starbucks or the fact that they have more stroke with retailers.

 

Finally, Dunkin doughnuts suck & their service is horrible.

[Spekulatius]

Starbucks product placement in grocery stores is far superior to Dunkin's.

Not sure if it's execution by Starbucks or the fact that they have more stroke with retailers.

 

Finally, Dunkin doughnuts suck & their service is horrible.

 

Even though I live in the heart of New England now I claim that Dunkin Donuts just sucks. Neither the coffee nor the donuts are any good.

[Gregmal]

Dunkin doesnt sell well in grocery stores for the same reason fountain drinks arent a big hit next to the rack of Pepsi/Coke cans and bottles...that said I buy Dunkin almost every day. Although SBUX Nitro cold brew is otherworldly, especially with some coffee flavored vodka. Kinda like Buffett and his MCD's breakfast sandwich decision, that $4.99 bad boy is only for the really good days, which lately have been few and far between.

[Castanza]

You guys make me feel like a peasant shitting all over my Dunkin  ;D Yeah it’s not private coffee shop quality, but it does the job and is cheap.

 

My indifference towards bad coffee drives my brother in-law crazy since he owns a coffee company, meets with Starbucks big wigs and has some fancy certification in coffee tasting.  ;D (whatever the hell that means)

 

FWIW I enjoy a good coffee and pastry like the next guy. Best coffee/bakery I’ve ever been to has to be Fox In The Snow Cafe in Columbus. If you ever make it out there it’s worth a stop.

 

@Spek, I agree on the “grunt” statement. Exactly why I put it in the too hard pile. Starbucks is simply the “Apple” of coffee and that warrants some amount of premium.

[bizaro86]

You guys make me feel like a peasant shitting all over my Dunkin  ;D Yeah it’s not private coffee shop quality, but it does the job and is cheap.

 

My indifference towards bad coffee drives my brother in-law crazy since he owns a coffee company, meets with Starbucks big wigs and has some fancy certification in coffee tasting.  ;D (whatever the hell that means)

 

FWIW I enjoy a good coffee and pastry like the next guy. Best coffee/bakery I’ve ever been to has to be Fox In The Snow Cafe in Columbus. If you ever make it out there it’s worth a stop.

 

@Spek, I agree on the “grunt” statement. Exactly why I put it in the too hard pile. Starbucks is simply the “Apple” of coffee and that warrants some amount of premium.

 

Your avatar and this post made me realize that fancy coffee would have made for a great Seinfeld episode.

[DooDiligence]

You guys make me feel like a peasant shitting all over my Dunkin  ;D Yeah it’s not private coffee shop quality, but it does the job and is cheap.

 

My indifference towards bad coffee drives my brother in-law crazy since he owns a coffee company, meets with Starbucks big wigs and has some fancy certification in coffee tasting.  ;D (whatever the hell that means)

 

FWIW I enjoy a good coffee and pastry like the next guy. Best coffee/bakery I’ve ever been to has to be Fox In The Snow Cafe in Columbus. If you ever make it out there it’s worth a stop.

 

@Spek, I agree on the “grunt” statement. Exactly why I put it in the too hard pile. Starbucks is simply the “Apple” of coffee and that warrants some amount of premium.

 

Nothing personal ;)

 

Krispy Kreme produces doughnuts that are IMO the gold standard.

 

I've only visited Dunkin twice in the past few years & on both occasions it took forever to get service in locations that were not in the least crowded.

One of the locations was in St. Pete and the other was here in Pensacola.

 

Super slow service in 2 completely different cities made me think the company isn't too concerned with catching volume.

 

The last time made me decide not to try them again.

 

My sister bought into Starbucks & I started noticing how the Starbucks displays in grocery stores were tight & the Dunkin displays looked like a closeout rack.

[Guest roark33]

SBUX pre-announced today, said they paused their buyback.  They had the most experience with China, announced a buyback and then cancel it 3 weeks later.  Hmm..I wonder if they bought a single share. 

[Gregmal]

I think these updates are helpful through trying to figure out what extent this stuff is baked into expectations. MCD posted horrible projections, market shrugged it off. SBUX just said sales halved and recovery could take til end of year...-2%

[Guest roark33]

yeah, something about voting and weighing machine comes to mind.

[Gregmal]

Conversely you could backfill the question. What would cause a premier market darling like SBUX to get halved and then settled 30% off its highs? A quarter or two of sales 50% lower and uncertainty into year end. Makes a little more sense like that. Does this really deserve to lose 50-70% of its value because of a year long disruption? Because outside of that, its hard to see how people are "more" bearish given the declines already happened. Arguing about the multiple is stupid, because the multiple before was high, so it wouldn't be unreasonable to expect a high multiple on both peak and trough. Could always be wrong though.

[glorysk87]

Conversely you could backfill the question. What would cause a premier market darling like SBUX to get halved and then settled 30% off its highs? A quarter or two of sales 50% lower and uncertainty into year end. Makes a little more sense like that. Does this really deserve to lose 50-70% of its value because of a year long disruption? Because outside of that, its hard to see how people are "more" bearish given the declines already happened. Arguing about the multiple is stupid, because the multiple before was high, so it wouldn't be unreasonable to expect a high multiple on both peak and trough. Could always be wrong though.

 

How much confidence do you have that this is a 3-6 month ordeal, and then we're back to the same level of economic activity as we were previously? Seems like the focus is exclusively on the 1st level impact of the virus -- people seem to think once the shutdowns end and the virus is under control that the economy snaps back to its previous level.  Is it crazy to think that some portion of the newly unemployed will stay that way? Once a business pulls costs out, it's not just a lever they can flip to restore the company back to the state they were in 6 months prior. Not to mention that unemployment is an event that has cascading effects on personal consumption for subsequent months or years.

 

And that's all just the virus related stuff -- does no one remember what the oil price crash did to the economy just on it's own in 2015 and 2016? It basically blew apart our entire industrial market for 18 months. And the state of the energy market today is arguably worse even if demand does recover.

 

Seems insane to me that people are glossing over all this stuff. The focus is so myopic -- "hey, the virus numbers are getting better! buy stocks!"

[Xaston]

Conversely you could backfill the question. What would cause a premier market darling like SBUX to get halved and then settled 30% off its highs? A quarter or two of sales 50% lower and uncertainty into year end. Makes a little more sense like that. Does this really deserve to lose 50-70% of its value because of a year long disruption? Because outside of that, its hard to see how people are "more" bearish given the declines already happened. Arguing about the multiple is stupid, because the multiple before was high, so it wouldn't be unreasonable to expect a high multiple on both peak and trough. Could always be wrong though.

 

How much confidence do you have that this is a 3-6 month ordeal, and then we're back to the same level of economic activity as we were previously? Seems like the focus is exclusively on the 1st level impact of the virus -- people seem to think once the shutdowns end and the virus is under control that the economy snaps back to its previous level.  Is it crazy to think that some portion of the newly unemployed will stay that way? Once a business pulls costs out, it's not just a lever they can flip to restore the company back to the state they were in 6 months prior. Not to mention that unemployment is an event that has cascading effects on personal consumption for subsequent months or years.

 

And that's all just the virus related stuff -- does no one remember what the oil price crash did to the economy just on it's own in 2015 and 2016? It basically blew apart our entire industrial market for 18 months. And the state of the energy market today is arguably worse even if demand does recover.

 

Seems insane to me that people are glossing over all this stuff. The focus is so myopic -- "hey, the virus numbers are getting better! buy stocks!"

 

There’s another side to these types of questions too. 

 

Will Starbucks have more, less, or the same amount of competition once the shutdowns end?  I think less.

[Gregmal]

Conversely you could backfill the question. What would cause a premier market darling like SBUX to get halved and then settled 30% off its highs? A quarter or two of sales 50% lower and uncertainty into year end. Makes a little more sense like that. Does this really deserve to lose 50-70% of its value because of a year long disruption? Because outside of that, its hard to see how people are "more" bearish given the declines already happened. Arguing about the multiple is stupid, because the multiple before was high, so it wouldn't be unreasonable to expect a high multiple on both peak and trough. Could always be wrong though.

 

How much confidence do you have that this is a 3-6 month ordeal, and then we're back to the same level of economic activity as we were previously? Seems like the focus is exclusively on the 1st level impact of the virus -- people seem to think once the shutdowns end and the virus is under control that the economy snaps back to its previous level.  Is it crazy to think that some portion of the newly unemployed will stay that way? Once a business pulls costs out, it's not just a lever they can flip to restore the company back to the state they were in 6 months prior. Not to mention that unemployment is an event that has cascading effects on personal consumption for subsequent months or years.

 

And that's all just the virus related stuff -- does no one remember what the oil price crash did to the economy just on it's own in 2015 and 2016? It basically blew apart our entire industrial market for 18 months. And the state of the energy market today is arguably worse even if demand does recover.

 

Seems insane to me that people are glossing over all this stuff. The focus is so myopic -- "hey, the virus numbers are getting better! buy stocks!"

 

The point is bigger picture. You just saw a premium company like SBUX drop 50% on a broader market correction. If you have always admired to the company but never owned it, do you need to see anything else?? SBUX isn't going out of business, and the main reason for multiple contraction, secular decline or specific and likely permanent business impairment doesnt apply here. Study major market drops. You can pretty much, universally, without knowing anything else, see that 50% declines in premium businesses is ALWAYS a buying opportunity. The problem for most, is that when these big drops occur, they are too busy playing into their preconceived biases and going "OMG I KNEW IT WAS GOING TO HAPPEN!!!" Many times even, there s also "its still got further to go! because now I'm right and its going to go where "I" thought all along!" Wrong. Theres several threads here that perfectly display this behavior during the recent crash. I remember vividly early in my career seeing many do this when NFLX went from 300 to 50. I bought at $80 and laughed at them and guess who made money?

 

I own 0 SBUX. But its a great business and I continue to be amazed at how people willfully miss the forest for the trees because they get too caught up in the short term. Such as 3-6-12 months.

[rkbabang]

Conversely you could backfill the question. What would cause a premier market darling like SBUX to get halved and then settled 30% off its highs? A quarter or two of sales 50% lower and uncertainty into year end. Makes a little more sense like that. Does this really deserve to lose 50-70% of its value because of a year long disruption? Because outside of that, its hard to see how people are "more" bearish given the declines already happened. Arguing about the multiple is stupid, because the multiple before was high, so it wouldn't be unreasonable to expect a high multiple on both peak and trough. Could always be wrong though.

 

How much confidence do you have that this is a 3-6 month ordeal, and then we're back to the same level of economic activity as we were previously? Seems like the focus is exclusively on the 1st level impact of the virus -- people seem to think once the shutdowns end and the virus is under control that the economy snaps back to its previous level.  Is it crazy to think that some portion of the newly unemployed will stay that way? Once a business pulls costs out, it's not just a lever they can flip to restore the company back to the state they were in 6 months prior. Not to mention that unemployment is an event that has cascading effects on personal consumption for subsequent months or years.

 

And that's all just the virus related stuff -- does no one remember what the oil price crash did to the economy just on it's own in 2015 and 2016? It basically blew apart our entire industrial market for 18 months. And the state of the energy market today is arguably worse even if demand does recover.

 

Seems insane to me that people are glossing over all this stuff. The focus is so myopic -- "hey, the virus numbers are getting better! buy stocks!"

 

The point is bigger picture. You just saw a premium company like SBUX drop 50% on a broader market correction. If you have always admired to the company but never owned it, do you need to see anything else?? SBUX isn't going out of business, and the main reason for multiple contraction, secular decline or specific and likely permanent business impairment doesnt apply here. Study major market drops. You can pretty much, universally, without knowing anything else, see that 50% declines in premium businesses is ALWAYS a buying opportunity. The problem for most, is that when these big drops occur, they are too busy playing into their preconceived biases and going "OMG I KNEW IT WAS GOING TO HAPPEN!!!" Many times even, there s also "its still got further to go! because now I'm right and its going to go where "I" thought all along!" Wrong. Theres several threads here that perfectly display this behavior during the recent crash. I remember vividly early in my career seeing many do this when NFLX went from 300 to 50. I bought at $80 and laughed at them and guess who made money?

 

I own 0 SBUX. But its a great business and I continue to be amazed at how people willfully miss the forest for the trees because they get too caught up in the short term. Such as 3-6-12 months.

 

I've been looking at SBUX.  I hate the coffee, but everyone else seems to love it.  I drove by my local Starbucks yesterday and was shocked.  I've driven by it 1000 times and have never seen it like that.  The drivethrough line was around the store and across the parking lot I stopped trying to count the cars, I ran out of time as I drove passed I was over 20 and not near the end of the line.

 

[rkbabang]

Starbucks product placement in grocery stores is far superior to Dunkin's.

Not sure if it's execution by Starbucks or the fact that they have more stroke with retailers.

 

Finally, Dunkin doughnuts suck & their service is horrible.

 

Even though I live in the heart of New England now I claim that Dunkin Donuts just sucks. Neither the coffee nor the donuts are any good.

 

I agree, the coffee is mediocre at best and the donuts are terrible.  A lot of people have nostalgia for the brand.  I grew up in New England and the Donuts were incredibly good in the 1970/early 80s, most shops baked them on site, they were bigger and fresher.  The coffee was the same, but everyone made Folgers at home and Dunks was good in comparison.    I don't know how long you can survive on nostalgia alone though.

 

[johnny]

Will Starbucks have more, less, or the same amount of competition once the shutdowns end?  I think less.

 

I think this is a take where you guys have it totally wrong. Will a lot of indie coffee shops go belly up? Yes of course. And then what happens, when 50% of retail is vacant because of tenant extinction, and a bunch of landlords are stuck with $20,000 of La Marzocco machines in their nicely finished spaces? I'm going to go ahead and bet that one of the ten million experienced baristas in this country is going to be willing to give it a go, at the appropriate lease.

 

If anything, this might be a big shakeup that creates the raw opportunity/pricing/space for experimentation and the next big generational leap in coffee. Okay, maybe that's a stretch. But those expecting some sort of permanent reduction in competition/supply? I'd bet against that.

[Viking]

Will Starbucks have more, less, or the same amount of competition once the shutdowns end?  I think less.

 

I think this is a take where you guys have it totally wrong. Will a lot of indie coffee shops go belly up? Yes of course. And then what happens, when 50% of retail is vacant because of tenant extinction, and a bunch of landlords are stuck with $20,000 of La Marzocco machines in their nicely finished spaces? I'm going to go ahead and bet that one of the ten million experienced baristas in this country is going to be willing to give it a go, at the appropriate lease.

 

If anything, this might be a big shakeup that creates the raw opportunity/pricing/space for experimentation and the next big generational leap in coffee. Okay, maybe that's a stretch. But those expecting some sort of permanent reduction in competition/supply? I'd bet against that.

 

In the very short term i think some independent coffee shops will not survive; those that do will need a good takeout business. Until the virus has a vaccine i would be surprised if many new independents opened; too much risk if the virus comes back in the fall (as expected). And financing will likely be very difficult to get. Bottom line, in the short term the virus will benefit the big players like Starbucks much more than the small independents and Starbucks should be able to grow share. Looking out a few years, yes, new competitors will enter; that is the beauty of capitalism.

[johnny]

Agreed that there's a share benefit in play for Starbucks and the rest--but I still think there's a misunderstanding about what is going to happen to each of these independent coffee shops. These have already been built out as coffee shops. There's no other thing that can be done economically in these spaces. The worse the economy, the stronger my claim. If the economy is so bad that you can't make money selling a $4 item at 80% gross margins, you're sure as hell not going to find a new tenant willing to spend $50k on a buildout to turn it into a gourmet grilled cheese experience or sneaker store.

 

The economics of coffee shops are just fundamentally different than the economics of oil wells. The current equity might be wiped, but there's never going to be an economic rationale for shut-in.

 

So some indie guys will be shaken out and perhaps bounced out of their spaces. But landlords will then have the choice to have a totally empty $0 rent paying coffee shop for the next year, or give somebody else a discounted shot at it. You really only need to sell 10 drinks per hour to cover your marginal costs. If you're an owner-operator with no other prospects for your labor, you only need like 5 or 6.

 

I'm exposed to Starbucks through PSH, so I'm not exactly a bear here. Just presenting the reason I'm not quite an unmitigated bull.

[winjitsu]

 

I think this is a take where you guys have it totally wrong. Will a lot of indie coffee shops go belly up? Yes of course. And then what happens, when 50% of retail is vacant because of tenant extinction, and a bunch of landlords are stuck with $20,000 of La Marzocco machines in their nicely finished spaces? I'm going to go ahead and bet that one of the ten million experienced baristas in this country is going to be willing to give it a go, at the appropriate lease.

 

If anything, this might be a big shakeup that creates the raw opportunity/pricing/space for experimentation and the next big generational leap in coffee. Okay, maybe that's a stretch. But those expecting some sort of permanent reduction in competition/supply? I'd bet against that.

 

 

If any of you guys have had $1 pizza in NYC, this is exactly how it was started back in '09. Economics only worked because they were able to get incredibly cheap leases and this business model was threatened over the past few years as the leases expired. I suspected we'll see similar stories to this as we emerge from this.

 

Personal anecdote: There are ~3 Starbucks within 5 miles of my house and 2 of them are closed. The only remaining open one has absurdly long lines.

[johnny]

Damn I love it when history twists itself into knots to validate my improvised bullshit